China FDI Set for New Record

July 28, 2011 Posted by China Briefing Reading Time: 3 minutes

Jul. 28 – Foreign direct investment in China is on target to exceed US$106 billion this year, which would be a new record high. Yu Jianhua, assistant to the Commerce Minister, stated that from January to June, FDI rose by 18.4 percent year-on-year to US$60.9 billion.

“So far this year, the growth momentum of China’s FDI has been strong. If it can be maintained, China’s FDI will reach a new high point, surpassing last year’s level,” said Yu, speaking yesterday at the 15th China International Fair for Investment and Trade in Beijing.

Last year, FDI in China reached US$105.7 billion, up 17.4 percent year-on-year. Despite the increase for the first half, monthly year-on-year growth is declining. In March, China’s FDI growth stood at 32.9 percent, however, the figure weakened to 2.83 percent in June, data from the ministry show. However, the fluctuation does not necessarily mean multinationals are losing confidence and holding back on investing in the Chinese market.

The yearly World Investment Report released on Tuesday by the United Nations Conference on Trade and Development said that China will remain the most attractive investment destination in the next two years. According to the report, China absorbed the second-largest volume of FDI in 2010, following the United States, and for the 19th consecutive year was the largest developing economy in terms of FDI and the second-largest worldwide.

“China will maintain its commitment to its strategy of opening the market to the world and effectively utilizing foreign investment,” Yu said. “China will open the market wider, especially the service sector, simplifying procedures, such as granting local governments authority to approve FDI proposals, and strengthening its efforts in fighting the infringement of intellectual property rights.”

In 2010, China’s service sector absorbed 46.1 percent of the total FDI that year, and the western part of the country outperformed the rest in FDI growth. Chris Devonshire-Ellis, principal of Dezan Shira & Associates, a services firm that specializes in assisting foreign investors in China, confirmed this view.

”These figures are in line with our own experience this year to date, where we have seen a significant upsurge in foreign investors coming into the China market,” Devonshire-Ellis commented. “Existing investors are expanding operations and we are seeing a consistent influx of new-to-China investors also. Our own practice is seeing client growth of about 18 percent to date this year. However, costs in China have also been increasing and the increase in investment has not yet manifested itself into a jump in profits. A rebalancing of the Chinese economy is taking place and much of the FDI is medium term investment looking to the future to take advantage of China’s changing consumer demographics. It will take time for many of this new investment to filter into bottom lines. Now is a time to develop China’s consumer society and we are currently seeing the investment part of that take place.”

Dezan Shira & Associates is a boutique professional services firm providing FDI China business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. For advice, please email info@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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